Annual Reports | Quarterly Filings | News | Prospectuses | Proxies | Mergers & Acquisitions | Initial Public Offerings

INSESSION TECHNOLOGIES INC
S-1, 2000-06-02

Previous: BLUE CAPITAL ASSOCIATES INC, 10SB12G/A, 2000-06-02

Next: INSESSION TECHNOLOGIES INC, S-1, EX-2.1, 2000-06-02

---

---

Delaware (State or other jurisdiction of incorporation or organization)

7372 (Primary Standard Industrial Classification Code Number)

47-0830767 (I.R.S. Employer Identification Number)

Daniel W. Rabun Baker & McKenzie 2300 Trammel Crow Center 2001 Ross Avenue Dallas, Texas 75201 (214) 978-3000

Raymond B. Check Cleary, Gottlieb, Steen & Hamilton One Liberty Plaza New York, New York 10006-1470 (212) 225-2000

---

---

Title of each class of securities to be registered		Proposed Maximum Aggregate Offering Price (1)(2)		Amount of Registration Fee
Common Stock, $.01 par value		$70,000,000		$18,480
Options to acquire Common Stock(3)		—		—

---

(1)	Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as amended.

(2)	Includes shares of common stock that the underwriters have the option to purchase from Insession Technologies, Inc. to cover over-allotments, if any.

(3)

Insession Technologies, Inc. is offering to its employees the right to acquire shares of common stock. Under certain circumstances, employees purchasing shares of common stock will also receive options to acquire common stock under the Insession Technologies, Inc. Concurrent Offering Stock Plan. No separate filing fee is being made with respect to these options since no additional consideration is being paid for the options.

---

---

		Per Share		Total
Initial Public Offering Price		$		$
Underwriting Discount		$		$
Proceeds to Insession (before expenses)		$		$

William Blair & Company

 

Ÿ

Enterprise connectivity

Ÿ

Data replication and movement

Ÿ

Monitoring and management

Ÿ

Business-critical middleware

Ÿ

Business process automation

Ÿ

Services

Ÿ

Private Networks

Ÿ

Public Networks

Ÿ

Customers

Ÿ

Partners

Ÿ

Employees

		Page
Prospectus Summary		1
Risk Factors		7
Forward-Looking Statements		18
Use of Proceeds		18
Dividend Policy		19
Capitalization		20
Dilution		21
Selected Consolidated Financial Data		22
Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Business		34
Management		42
Our Relationship with TSA		51
Principal Stockholder		58
Description of Capital Stock		59
Shares Eligible for Future Sale		62
Material United States Federal Tax Consequences to Non-United States Holders		63
Underwriting		66
Legal Matters		68
Experts		68
Where You Can Find More Information		68
Index to Financial Statements		F-1

Ÿ

Enterprise connectivity. Our connectivity software products link incompatible computing systems involving mainframes, distributed computing networks and the Internet for business-critical applications.

Ÿ

Data replication and movement. Our data replication software product duplicates and moves data between systems efficiently and reliably.

Ÿ

Monitoring and management. Our monitoring and management software continuously monitors business-critical systems and applications for problems or other user-designated events, and provides utilities that assist with development, testing and database administration.

Ÿ

Business-critical middleware. Our middleware product provides a framework for developing online business applications.

Ÿ

Business process automation. Our business process automation software enables our customers to model, automate and manage business processes within their enterprises and with their suppliers, customers and other business partners.

Ÿ

Services. We offer our customers an established service organization to install our software products and integrate them with existing hardware and applications. In addition, we offer a range of analysis, design, development, implementation, integration and training services focused on business-critical systems.

Ÿ

Preservation of legacy systems investment. Our solutions allow our customers to connect their legacy systems to new eBusiness applications without the need to replace or re-engineer their existing systems.

Ÿ

Continuous availability. We believe our customers benefit from our extensive experience in transaction processing environments where reliability and continuous availability are vital.

Ÿ

Scalability. Our software products are designed to support rapid growth in transaction volumes without requiring substantial modification of systems connections.

Ÿ

High-volume operation. Our software products are designed for high-volume transaction processing environments and have been operating for many years in banks and other financial institutions where daily transaction volumes are in the millions.

Focus on the business-critical segment of the eBusiness infrastructure software market. We believe that the market for software and services that enable companies to integrate their systems, applications and processes electronically will grow. We will continue to focus on the business-critical segment of this market where continuous availability at high transaction volumes is vital to our customers’ operations.

Maintain our technology leadership. We intend to use our technical expertise to develop new infrastructure software solutions and continually upgrade our existing products to maintain and enhance our competitive position.

Expand our worldwide direct sales organization. We will continue to hire new personnel to increase our penetration of a variety of industry markets, and to increase sales of our products and services in markets outside the United States.

Offer additional products and services to our existing customer base. Over 340 customers around the world currently use our software products and services. As we add new products and services, we intend to aggressively market these new offerings to our existing customers.

Pursue strategic alliances. To broaden the market for our products, we intend to enter into strategic relationships with leading third-party systems integrators and technology providers. In addition, we intend to enter into relationships with providers whose technologies and application-specific expertise complement our products.

Acquire new product technologies. In order to supplement our internal research and development efforts, we intend to obtain technologies and products through acquisitions. We will also identify technologies and products that we can license from third parties and distribute through our direct sales organization. For the six months ended March 31, 2000, revenues from products sold for third parties accounted for 11.9% of our total revenues.

Common stock offered by Insession in the      underwritten offering to the public		shares
Common stock offered by Insession in the      concurrent offering to our employees		shares
Common stock of Insession to be outstanding      immediately after the offerings, assuming the      concurrent offering to employees is fully      subscribed		shares
Common stock of Insession to be held by TSA      immediately after the offering		shares
Use of proceeds		We estimate that we will receive net proceeds from the offering and the concurrent offering of approximately $             million based on an assumed initial public offering price of $             per share, the midpoint of the range described on the cover of this prospectus. We intend to use a portion of the net proceeds to repay approximately $7.2 million of indebtedness under promissory notes due to TSA and approximately $9.0 million of TSA’s bank indebtedness assumed by us. We intend to use some of the net proceeds for general working capital purposes. In addition, we may use a portion of the net proceeds for acquisitions of businesses, products and technologies that are complementary to ours. See “Use of Proceeds.”
Proposed Nasdaq National Market symbol		INSX

Ÿ

the transfer from TSA to us of assets and the assumption by us of liabilities relating to our business; and

Ÿ

various interim and ongoing relationships between us and TSA.

		Year Ended September 30,												Six Months Ended March 31,
		1997			1998			1999			Pro Forma 1999			1999			Pro Forma 1999			2000
											(unaudited)			(unaudited)			(unaudited)
		(in thousands)
Consolidated Statements of Income Data:
Revenues:
Software license and maintenance         fees (1)		$13,413			$24,973			$31,418			$32,012			$16,591			$17,261			$19,142
Services		6,521			8,027			8,166			8,182			4,321			4,337			2,705
Total revenues		19,934			33,000			39,584			40,194			20,912			21,598			21,847
Expenses:
Cost of software license and maintenance fees:
Cost of software		6,371			12,419			7,711			337			7,374			—			366
Amortization of software		413			393			3,294			5,449			495			2,650			2,716
Cost of support and maintenance		158			122			1,829			2,540			569			1,280			1,174
Cost of services		4,433			5,109			4,183			4,183			2,107			2,107			1,823
Research and development		—			—			2,080			3,764			792			2,476			1,355
Sales and marketing		4,685			6,181			8,325			8,743			4,264			4,682			4,690
General and administrative		1,970			2,798			5,424			8,019			2,624			5,219			3,647
Amortization of goodwill		—			—			2,047			4,172			373			2,498			2,399
Total expenses		18,030			27,022			34,893			37,207			18,598			20,912			18,170
Operating income		1,904			5,978			4,691			2,987			2,314			686			3,677
Other income (expense):
Interest income		—			—			54			54			—			—			86
Interest expense to related party		—			—			(308	)		(497	)		(45	)		(234	)		(260	)
Minority interest in net income		—			—			(526	)		—			(175	)		—			—
Total other		—			—			(780	)		(443	)		(220	)		(234	)		(174	)
Income before income taxes		1,904			5,978			3,911			2,544			2,094			452			3,503
Provision for income taxes		(732	)		(2,293	)		(2,283	)		(2,552	)		(1,222	)		(1,121	)		(2,258	)
Net income (loss)		$  1,172			$  3,685			$  1,628			$        (8	)		$    872			$    (669	)		$  1,245

		Year Ended September 30,								Six Months Ended March 31,
		1997		1998		1999		Pro Forma 1999		1999		Pro Forma 1999		2000
								(unaudited)		(unaudited)		(unaudited)
Basic and diluted net income (loss) per common share (2)		$		$		$		$		$		$		$
Shares used in computing basic and diluted net     income (loss) per common share (2) (in thousands)
Consolidated Other Data:
EBITDA (3) (unaudited) (in thousands)		$2,449		$6,535		$10,351		$12,927		$3,297		$5,949		$8,968

Ÿ

on an actual basis;

Ÿ

on a pro forma basis to reflect our assumption of approximately $9.0 million of TSA’s bank indebtedness; and

Ÿ

on a pro forma as adjusted basis to reflect our receipt of the estimated net proceeds from the sale of           shares of common stock in this offering and the concurrent offering, the repayment of approximately $7.2 million of indebtedness due to TSA and the repayment of approximately $9.0 million of TSA’s bank indebtedness.

		As of March 31, 2000
Consolidated Balance Sheet Data:		Actual			Pro Forma			Pro Forma As Adjusted
					(in thousands)
Working capital (deficit)		$ (7,215	)		$(16,215	)		$
Total assets		59,921			59,921
Total debt		7,168			16,168			—
Total stockholders’ equity		35,952			26,952

(1)	Effective October 1, 1998, we changed our method of accounting for software license fees revenue. See note 2 to the consolidated financial statements of Insession Technologies, Inc. included elsewhere in the prospectus.

(2)

Prior to the consummation of the offering, we intend to issue            shares of our common stock to TSA in consideration for TSA’s contribution to us of the businesses of Grapevine Systems, Inc., Insession Inc. and WorkPoint Systems, Inc. and other assets and liabilities. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview.”

(3)

EBITDA represents income before income taxes, plus depreciation and amortization expense, minority interest in net income and net interest expense. EBITDA is not a measure of performance under generally accepted accounting principles and should not be considered as an alternative to net income as a measure of operating results or to cash flows as a measure of liquidity. We have included information concerning EBITDA as one measure of our cash flow and our ability to incur and service indebtedness and because we believe investors find this information useful. EBITDA as defined may not be comparable to similarly titled measures reported by other companies.

Ÿ

inadequate development of the necessary communications and computer network technology, particularly if rapid growth of the Internet continues;

Ÿ

delayed development of enabling technologies and performance improvements;

Ÿ

increased security risks in transmitting and storing confidential information over public networks; and

Ÿ

increased governmental regulation or taxation.

Ÿ

acquired businesses, technologies and products may not achieve anticipated revenues, earnings or cash flow;

Ÿ

technologies, products, personnel or operations may be difficult to combine;

Ÿ

issuances of stock as consideration for acquisitions may have a dilutive effect on current stockholders’ ownership;

Ÿ

amortization expense relating to goodwill and other intangible assets and other acquisition-related charges, costs and expenses may have an adverse effect on net income; and

Ÿ

conducting and integrating acquisitions may disrupt our existing business and divert management’s attention and other resources.

Ÿ

the size and timing of customer orders and the payment plans selected by our customers, which can be affected by customer budgeting and purchasing cycles;

Ÿ

the date of product delivery;

Ÿ

employee compensation policies, which tend to reward our sales personnel for achieving fiscal year-end, rather than quarterly, revenue quotas;

Ÿ

our ability to develop, introduce and market new products on a timely basis;

Ÿ

the demand for, and market acceptance of, our software solutions;

Ÿ

our competitors’ announcements or introductions of new software solutions, services or technological innovations;

Ÿ

the amount and timing of operating costs and capital expenditures related to the expansion of our operations; and

Ÿ

general economic conditions that may affect our customers’ capital investment levels.

Ÿ

increase our research and development activities;

Ÿ

increase our services activities;

Ÿ

expand our distribution channels;

Ÿ

increase our sales and marketing activities, including expanding our direct sales force;

Ÿ

build our internal information technology system; and

Ÿ

operate as an independent public company.

Ÿ

develop and market new technologies that render our existing or future products obsolete, unmarketable or less competitive;

Ÿ

make strategic acquisitions or establish cooperative relationships among themselves or with other systems solution providers, which would increase the ability of their products to address the needs of our customers; and

Ÿ

establish or strengthen cooperative relationships with our current or future strategic partners, which would limit our ability to sell products through these channels.

Ÿ

damage or interrupt our customers’ critical systems or business functions;

Ÿ

cause our customers to experience severe system failures;

Ÿ

damage our reputation;

Ÿ

increase our product development costs;

Ÿ

divert our product development resources;

Ÿ

cause us to lose sales; or

Ÿ

delay market acceptance of our products.

Ÿ

changes in a specific country’s or region’s political or economic conditions and stability, particularly in emerging markets;

Ÿ

trade protection measures and import or export licensing requirements;

Ÿ

potentially negative consequences from changes in tax laws;

Ÿ

difficulty in staffing and managing widespread operations;

Ÿ

international variations in technology standards;

Ÿ

differing levels of protection of intellectual property;

Ÿ

unexpected changes in regulatory requirements, including imposition of currency exchange controls, applicable to our business or to the Internet;

Ÿ

difficulty in establishing or maintaining relationships with systems integrators and service, distribution and marketing partners and the performance of these partners in selling our products;

Ÿ

difficulties and costs of adapting products for foreign markets, including the development of multilingual capabilities in our products;

Ÿ

costs of enforcing contractual obligations; and

Ÿ

greater risk of uncollectable accounts and longer collection periods.

Ÿ

legal;

Ÿ

accounting/financial planning;

Ÿ

treasury;

Ÿ

real estate;

Ÿ

tax;

Ÿ

information technology;

Ÿ

distribution;

Ÿ

customer service;

Ÿ

human resources;

Ÿ

investor relations;

Ÿ

sales operations; and

Ÿ

marketing.

Ÿ

the allocation of business opportunities that may be suitable for TSA and us;

Ÿ

any determinations with respect to mergers or other business combinations involving us;

Ÿ

new product development;

Ÿ

the acquisition or disposition of assets or businesses by us;

Ÿ

our debt or equity financing, including future issuance of our common stock or other securities;

Ÿ

changes to the agreements providing for our separation from TSA and our use of TSA’s services after the separation; and

Ÿ

amendments to our certificate of incorporation or by-laws.

Ÿ

major business combinations involving us or TSA, including an acquisition of us by a third party;

Ÿ

our efforts to raise capital in debt or equity financing;

Ÿ

labor, tax, employee benefit, indemnification and other matters arising from our separation from TSA;

Ÿ

employee retention and recruiting;

Ÿ

sales or distributions by TSA of all or any portion of its ownership interest in us;

Ÿ

the nature, quality and pricing of products and services TSA has agreed to provide us; and

Ÿ

business opportunities that may be attractive to both TSA and us.

Ÿ

variations in our annual or quarterly results;

Ÿ

announcements of technological innovations and significant contracts by us or by our competitors;

Ÿ

introductions of new products or new pricing policies by us or by our competitors;

Ÿ

acquisitions or strategic alliances by us or by our competitors;

Ÿ

recruitment or departure of key personnel;

Ÿ

the gain or loss of significant orders;

Ÿ

changes in the estimates of our operating performance or changes in recommendations by securities analysts;

Ÿ

changes in market valuations of similar companies;

Ÿ

market conditions in the industry and the economy as a whole;

Ÿ

actions by institutional stockholders or by TSA prior to its distribution of our stock;

Ÿ

speculation in the press or investment community;

Ÿ

legal claims or actions affecting us;

Ÿ

sales of our common stock by existing stockholders;

Ÿ

domestic and international economic factors unrelated to our performance; and

Ÿ

fluctuations in the stock market generally.

Ÿ

on an actual basis;

Ÿ

on a pro forma basis to reflect our assumption of approximately $9.0 million of TSA’s bank indebtedness and the issuance of common stock to TSA in consideration of TSA’s contribution to us of assets and liabilities relating to our business prior to consummation of the offering; and

Ÿ

on a pro forma as adjusted basis to reflect our receipt of $    million of net proceeds from the sale of              shares of common stock in this offering and the concurrent offering, after deducting underwriting discounts and estimated offering expenses, assuming an initial public offering price of $     per share and the application of the net proceeds as described under “Use of Proceeds.”

		As of March 31, 2000
		Actual		Pro Forma		Pro Forma As Adjusted
		(in thousands)
Debt:
Due to affiliated company		$  7,168		$  7,168		$—
TSA bank indebtedness assumed by us		—		9,000		—
Total debt		7,168		16,168		—
Stockholders’ equity:
Common stock, $0.01 par value, 150,000,000 shares authorized, 100                 shares issued and outstanding actual;        shares issued and                 outstanding on a pro forma as adjusted basis		—
Preferred stock, $0.01 par value, 25,000,000 shares authorized, no                 shares issued and outstanding		—		—		—
Parent company investment		35,952		—		—
Additional paid-in capital		—
Total stockholders’ equity		35,952		26,952
Total capitalization		$43,120		$43,120		$

Initial public offering price per share				$
Pro forma net tangible book value per share at March 31, 2000
Increase in pro forma net tangible book value per share attributable to new investors
Pro forma as adjusted net tangible book value per share after the offering and the      concurrent offering
Dilution per share to new investors in the underwritten offering				$

Ÿ

no exercise of any options;

Ÿ

no exercise of the underwriters’ over-allotment option; and

Ÿ

prior to the consummation of the offering, the issuance of       shares of our common stock to TSA in consideration for TSA’s contribution to us of the businesses of Grapevine Systems, Inc., Insession Inc. and WorkPoint Systems, Inc. and other assets and liabilities. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview.”

		Year Ended September 30,																		Six Months Ended March 31,
		1995			1996			1997			1998			1999			Pro Forma 1999			1999			Pro Forma 1999			2000
		(unaudited)			(unaudited)												(unaudited)			(unaudited)			(unaudited)
		(in thousands, except per share data)
Consolidated Statements of     Income Data:
Revenues:
Software license and maintenance         fees (1)		$  7,169			$10,598			$13,413			$24,973			$31,418			$32,012			$16,591			$17,261			$19,142
Services		3,380			4,325			6,521			8,027			8,166			8,182			4,321			4,337			2,705
Total revenues		10,549			14,923			19,934			33,000			39,584			40,194			20,912			21,598			21,847
Expenses:
Cost of software license and         maintenance fees:
Cost of software		3,140			4,725			6,371			12,419			7,711			337			7,374			—			366
Amortization of software		—			13			413			393			3,294			5,449			495			2,650			2,716
Cost of support and              maintenance		262			416			158			122			1,829			2,540			569			1,280			1,174
Cost of services		2,129			2,533			4,433			5,109			4,183			4,183			2,107			2,107			1,823
Research and development		—			—			—			—			2,080			3,764			792			2,476			1,355
Sales and marketing		2,995			3,500			4,685			6,181			8,325			8,743			4,264			4,682			4,690
General and administrative		1,126			1,207			1,970			2,798			5,424			8,019			2,624			5,219			3,647
Amortization of goodwill		—			—			—			—			2,047			4,172			373			2,498			2,399
Total expenses		9,652			12,394			18,030			27,022			34,893			37,207			18,598			20,912			18,170
Operating income		897			2,529			1,904			5,978			4,691			2,987			2,314			686			3,677
Other income (expense):
Interest income		—			—			—			—			54			54			—			—			86
Interest expense to related party		—			—			—			—			(308	)		(497	)		(45	)		(234	)		(260	)
Minority interest in net income		—			—			—			—			(526	)		—			(175	)		—			—
Total other		—			—			—			—			(780	)		(443	)		(220	)		(234	)		(174	)
Income before income taxes		897			2,529			1,904			5,978			3,911			2,544			2,094			452			3,503
Provision for income taxes		(343	)		(968	)		(732	)		(2,293	)		(2,283	)		(2,552	)		(1,222	)		(1,121	)		(2,258	)
Net income (loss)		$    554			$  1,561			$  1,172			$  3,685			$  1,628			$        (8	)		$    872			$    (669	)		$  1,245
Basic and diluted net income (loss)     per common share (2)		$			$			$			$			$			$			$			$			$
Shares used in computing basic and     diluted net income (loss) per     common share (2)
Consolidated Other Data:
EBITDA (3) (unaudited)		$    897			$  2,549			$  2,449			$  6,535			$10,351			$12,927			$  3,297			$  5,949			$  8,968

		As of September 30,												As of March 31,
		1995		1996		1997		1998			1999			1999			2000
		(unaudited)		(unaudited)		(unaudited)								(unaudited)
		(in thousands)
Consolidated Balance Sheet Data:
Working capital (deficit)		$  657		$  505		$  248		$  (177	)		$(14,126	)		$(18,958	)		$(7,215	)
Total assets		1,930		4,258		4,695		7 ,081			62,422			63,647			59,921
Total debt		—		—		—		—			6,908			6,644			7,168
Stockholder’s net investment		657		1,294		928		610			31,310			27,584			35,952

(1)	Effective October 1, 1998, we changed our method of accounting for software license fees revenue. See note 2 to the consolidated financial statements of Insession Technologies, Inc. included elsewhere in the prospectus.

(2)

Prior to the consummation of the offering, we intend to issue           shares of our common stock to TSA in consideration for TSA’s contribution to us of the businesses of Grapevine Systems, Inc., Insession Inc. and WorkPoint Systems, Inc. and other assets and liabilities. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Overview.”

(3)

EBITDA represents income before income taxes, plus depreciation and amortization expense, minority interest in net income and net interest expense. EBITDA is not a measure of performance under generally accepted accounting principles and should not be considered as an alternative to net income as a measure of operating results or to cash flows as a measure of liquidity. We have included information concerning EBITDA as one measure of our cash flow and our ability to incur and service indebtedness and because we believe investors find this information useful. EBITDA as defined may not be comparable to similarly titled measures reported by other companies.

		Year Ended September 30,						Six Months Ended March 31,
		1997		1998		1999		1999		2000
		(in thousands)
ILF/PUF		$  3,026		$11,672		$  6,421		$  4,093		$  8,666
MLFs (other than Recognized-Up-Front MLFs)		10,387		13,301		18,365		7,858		8,854
Recognized-Up-Front MLFs		—		—		6,632		4,640		1,822
		$13,413		$24,973		$31,418		$16,591		$19,142

		Year Ended September 30,												Six Months Ended March 31,
		1997			1998			1999			Pro Forma 1999			1999			Pro Forma 1999			2000
Revenues:
Software license and maintenance fees		67.3	%		75.7	%		79.4	%		79.6	%		79.3	%		79.9	%		87.6	%
Services		32.7			24.3			20.6			20.4			20.7			20.1			12.4
Total revenues		100.0			100.0			100.0			100.0			100.0			100.0			100.0
Expenses:
Cost of software license and maintenance                 fees:
Cost of software		31.9			37.6			19.5			0.8			35.2			0.0			1.7
Amortization of software		2.1			1.2			8.3			13.6			2.4			12.3			12.4
Cost of support and maintenance		0.8			0.4			4.6			6.3			2.7			5.9			5.4
Cost of services		22.2			15.5			10.6			10.4			10.1			9.7			8.3
Research and development		0.0			0.0			5.2			9.4			3.8			11.5			6.2
Sales and marketing		23.5			18.7			21.0			21.7			20.4			21.7			21.5
General and administrative		9.9			8.5			13.7			20.0			12.5			24.1			16.7
Amortization of goodwill		0.0			0.0			5.2			10.4			1.8			11.6			11.0
Total expenses		90.4			81.9			88.1			92.6			88.9			96.8			83.2
Operating income		9.6			18.1			11.9			7.4			11.1			3.2			16.8
Other income (expense):
Interest income		0.0			0.0			0.1			0.1			0.0			0.0			0.4
Interest expense to related party		0.0			0.0			(0.8	)		(1.2	)		(0.2	)		(1.1	)		(1.2	)
Minority interest in net income		0.0			0.0			(1.3	)		0.0			(0.9	)		0.0			0.0
Total other		0.0			0.0			(2.0	)		(1.1	)		(1.1	)		(1.1	)		(0.8	)
Income before income taxes		9.6			18.1			9.9			6.3			10.0			2.1			16.0
Provision for income taxes		(3.7	)		(6.9	)		(5.8	)		(6.3	)		(5.8	)		(5.2	)		(10.3	)
Net income		5.9	%		11.2	%		4.1	%		0.0	%		4.2	%		(3.1	)%		5.7	%

		Quarter Ended
		Fiscal 1998												Fiscal 1999												Fiscal 2000
		Dec. 31			March 31			June 30			Sept. 30			Dec. 31			March 31			June 30			Sept. 30			Dec. 31			March 31
		(unaudited and in thousands)
Consolidated Statements of Income     Data:
Revenues:
Software license and              maintenance fees		$3,933			$4,960			$7,182			$  8,898			$  9,561			$7,030			$7,018			$7,809			$  9,402			$9,740
Services		1,739			1,689			1,946			2,653			2,362			1,959			2,082			1,763			1,474			1,231
Total revenues		5,672			6,649			9,128			11,551			11,923			8,989			9,100			9,572			10,876			10,971
Expenses:
Cost of software license and              maintenance fees:
Cost of software		1,980			2,592			3,313			4,534			5,347			2,027			202			135			300			67
Amortization of software		133			85			88			87			65			430			1,432			1,367			1,359			1,356
Cost of support and                       maintenance		34			4			24			60			169			400			610			650			563			611
Cost of services		1,187			1,255			1,296			1,371			1,079			1,028			1,060			1,016			954			869
Research and development		—			—			—			—			356			436			660			628			666			689
Sales and marketing		1,363			1,390			1,580			1,848			2,237			2,027			2,068			1,993			2,073			2,617
General and administrative		684			666			703			745			1,313			1,311			1,510			1,290			1,804			1,843
Amortization of goodwill		—			—			—			—			—			373			809			865			1,373			1,026
Total expenses		5,381			5,992			7,004			8,645			10,566			8,032			8,351			7,944			9,092			9,078
Operating income		291			657			2,124			2,906			1,357			957			749			1,628			1,784			1,893
Other income (expense):
Interest income		—			—			—			—			—			—			26			28			30			56
Interest expense to related              party		—			—			—			—			—			(45	)		(131	)		(132	)		(132	)		(128	)
Minority interest in net income		—			—			—			—			—			(175	)		(289	)		(62	)		—			—
Total other		—			—			—			—			—			(220	)		(394	)		(166	)		(102	)		(72	)
Income before income taxes		291			657			2,124			2,906			1,357			737			355			1,462			1,682			1,821
Provision for income taxes		(112	)		(252	)		(815	)		(1,114	)		(792	)		(430	)		(207	)		(854	)		(1,084	)		(1,174	)
Net income		$  179			$  405			$1,309			$  1,792			$    565			$  307			$  148			$  608			$    598			$    647

		Quarter Ended
		Fiscal 1998												Fiscal 1999												Fiscal 2000
		Dec. 31			March 31			June 30			Sept. 30			Dec. 31			March 31			June 30			Sept. 30			Dec. 31			March 31
Revenues:
Software license and maintenance fees		69.3	%		74.6	%		78.7	%		77.0	%		80.2	%		78.2	%		77.1	%		81.6	%		86.4	%		88.8	%
Services		30.7			25.4			21.3			23.0			19.8			21.8			22.9			18.4			13.6			11.2
Total revenues		100.0			100.0			100.0			100.0			100.0			100.0			100.0			100.0			100.0			100.0
Expenses:
Cost of software license and maintenance              fees:
Cost of software		34.9			39.0			36.3			39.2			44.8			22.6			2.2			1.4			2.7			0.6
Amortization of software		2.4			1.3			1.0			0.8			0.5			4.8			15.7			14.3			12.5			12.4
Cost of support and maintenance		0.6			0.0			0.2			0.5			1.4			4.4			6.7			6.8			5.2			5.6
Cost of services		20.9			18.9			14.2			11.9			9.1			11.4			11.7			10.6			8.8			7.9
Research and development		0.0			0.0			0.0			0.0			3.0			4.9			7.3			6.6			6.1			6.3
Sales and marketing		24.0			20.9			17.3			16.0			18.8			22.6			22.7			20.8			19.1			23.8
General and administrative		12.1			10.0			7.7			6.4			11.0			14.6			16.6			13.5			16.6			16.8
Amortization of goodwill		0.0			0.0			0.0			0.0			0.0			4.1			8.9			9.0			12.6			9.3
Total expenses		94.9			90.1			76.7			74.8			88.6			89.4			91.8			83.0			83.6			82.7
Operating income		5.1			9.9			23.3			25.2			11.4			10.6			8.2			17.0			16.4			17.3
Other income (expense):
Interest income		0.0			0.0			0.0			0.0			0.0			0.0			0.3			0.3			0.3			0.5
Interest expense to related party		0.0			0.0			0.0			0.0			0.0			(0.5	)		(1.4	)		(1.4	)		(1.2	)		(1.2	)
Minority interest in net income		0.0			0.0			0.0			0.0			0.0			(1.9	)		(3.2	)		(0.6	)		0.0			0.0
Total other		0.0			0.0			0.0			0.0			0.0			(2.4	)		(4.3	)		(1.7	)		(0.9	)		(0.7	)
Income before income taxes		5.1			9.9			23.3			25.2			11.4			8.2			3.9			15.3			15.5			16.6
Provision for income taxes		(2.0	)		(3.8	)		(9.0	)		(9.7	)		(6.7	)		(4.8	)		(2.3	)		(8.9	)		(10.0	)		(10.7	)
Net income		3.1	%		6.1	%		14.3	%		15.5	%		4.7	%		3.4	%		1.6	%		6.4	%		5.5	%		5.9	%

Ÿ

Enterprise connectivity. Our connectivity software products link incompatible computing systems involving mainframes, distributed computing networks and, more recently, the Internet for business-critical applications.

Ÿ

Data replication and movement. Our data replication software product duplicates and moves data between systems efficiently and reliably. Data replication protects against data loss and interruption of service, allows for the sharing of data between applications, provides real-time data to decision support systems and enables application and system upgrades while minimizing downtime.

Ÿ

Monitoring and management. Our monitoring and management software continuously monitors business-critical systems and applications for problems or other user-designated events and notifies people or systems to take appropriate action before system events escalate into costly business interruptions.

Ÿ

Business-critical middleware. Our middleware product provides a framework for developing online business applications. This framework enables application developers to focus on the business functions required of the application rather than complexities such as the characteristics of the underlying operating system, communications protocols and recovery procedures required for business-critical services.

Ÿ

Business process automation. Our business process automation software enables our customers to model, automate and manage business processes within their enterprises and with their suppliers, customers and other business partners. This allows them to increase the efficiency of their business processes.

Ÿ

Services. We offer our customers an established service organization to install our software products and integrate them with existing hardware and applications. In addition, we offer a range of analysis, design, development, implementation, integration and training services focused on business-critical systems.

Ÿ

Preservation of legacy systems investment. Our solutions allow our customers to connect their legacy systems to new eBusiness applications without the need to replace or re-engineer their existing systems. This allows customers to deploy new eBusiness services while protecting their investments in existing applications and minimizing implementation costs.

Ÿ

Continuous availability. We offer software products that focus on business-critical applications. We believe our customers benefit from our extensive experience in transaction processing environments where reliability and continuous availability are vital.

Ÿ

Scalability. We believe that eBusiness will continue to grow at a rapid pace and that there will be a corresponding increase in the number of transactions that systems will need to process. Our software products are designed to support rapid growth in transaction volumes without requiring substantial modification of systems connections.

Ÿ

High-volume operation. Our software products are designed for high-volume transaction processing environments and have been operating for many years in banks and other financial institutions where daily transaction volumes are in the millions. We believe our customers will benefit from our experience in designing software to operate in high-volume processing environments.

Enterprise Connectivity

Data Replication and Movement

Monitoring and Management

Business-Critical Middleware

Business Process Automation

Services

Ÿ

ACI Worldwide (a subsidiary of TSA)

Ÿ

Golden Gate Software, Inc.

Ÿ

Merlon Software Corporation

Ÿ

SoftSell Business Systems

Ÿ

Cisco Systems, Inc.

Ÿ

Compaq Computer Corp.

Ÿ

IBM Corporation

Ÿ

Stratus Computer, Inc.

Banks ABN Amro Bank N.V. ANZ Banking Group Ltd. Bank One Corp. Bank of America Corp. Barclays Bank PLC Chase Manhattan Corp. Citibank First Chicago NBD Bank Old Kent Financial Corp. US Bancorp Washington Mutual Bank   Securities Boston Stock Exchange Chicago Board Options Exchange Olde Discount Corp. Pacific Stock Exchange Philadelphia Stock Exchange

Telecommunications SBC Communications, Inc.:     Ameritech Corp.     Pacific Bell     Southwestern Bell Telephone Co.   Retail Dayton Hudson Corporation, Target Stores Division Kohl’s Corp. May Department Stores Safeway, Inc.   Other Experian Information Solutions, Inc. (formerly TRW Information Services) Exxon Mobile Corp. Lockheed Martin Corp. Paypoint Electronic Payment Systems

Health Care Kaiser Permanente McKesson Corporation PCS Holding Corp.   Other Financial Services First Data Corp. MBNA Corp. M&I Data Services NYCE Corporation

Challenge: Kohl’s was looking for a way to automate credit verification and processing so that it could issue credit cards to its customers at the point of sale. Previously, a Kohl’s retail customer that wanted to apply for a Kohl’s credit card would need to complete an application which would then be sent to corporate headquarters for credit verification and processing. This manual paper process could take weeks to complete before a credit card was issued to the retail customer.

Solution: Kohl’s used ICE to link the Compaq NonStop Himalaya which processed transactions at its retail stores with its corporate mainframe which housed its credit verification and processing software. By providing its retail stores with access to credit information contained on its mainframe, ICE enabled Kohl’s to issue credit cards to its retail customers at the point of sale within 8 to 20 seconds after the input of customer information.

Challenge: US Bancorp needed to synchronize its transaction processing systems with remote back-up systems to keep its automated teller machines (ATMs) available around the clock. US Bancorp has 3,500 ATMs located throughout the United States that process over 25 million transactions per day. To ensure continuous availability of its ATMs and to protect against the loss of transactional data in the event of a system outage, US Bancorp has installed a backup system located 1,500 miles from its primary transaction processing system. US Bancorp required a solution that replicated, transferred and accurately applied transactional data to the backup system.

Solution: US Bancorp uses E/R to replicate its ATM transactions and transmit them electronically to its remote backup system. In the event of a system outage at the primary computing center, the backup contingency system will allow the ATM machines to continue processing customer transactions with up-to-the-minute business information at the time of the system outage.

Ÿ

Enterprise connectivity—Compaq and IBM

Ÿ

Data replication and movement—EMC Corporation, Entiti Corporation and IBM

Ÿ

Monitoring—BMC Software Inc., Computer Associates International, Inc., Hewlett Packard, IBM and Tivoli Systems, Inc.

Ÿ

Business-critical middleware—BEA Systems, Inc., IBM, New Era of Networks, Inc. and TIBCO Software, Inc.

Ÿ

Business process automation—Active Software, Inc., Software Technologies Corporation, TIBCO Software, Inc., and Vitria Technology, Inc.

Name		Age		Position
Anthony J. Parkinson		47		President, Chief Executive Officer and Director
Rick B. Ainsworth		33		Vice President of Global Sales
Michael F. Benson		51		Vice President of Business Process Automation
William J. Hoelting		42		Vice President of Investor Relations
Margo Holen		51		Vice President of Enterprise Availability
Neal A. Klegerman		45		Vice President, General Counsel and Secretary
James J. McFadden		42		Vice President and Chief Technical Officer
Matthew R. McKain		43		Vice President and Treasurer
Stephen J. Royer		42		Vice President and Chief Operating Officer
William E. Fisher		53		Director
Dwight G. Hanson		42		Director
David C. Russell		51		Director

		Shares Beneficially Owned
		TSA Common Stock
Name		Number of Shares		Percent of Class
Directors and Executive Officers:
Rick B. Ainsworth(1)		5,540		*
Michael F. Benson(2)		39,573		*
William E. Fisher(3)		581,000		1.8	%
Dwight G. Hanson(4)		67,721		*
James J. McFadden(5)		26,600		*
Anthony J. Parkinson(6)		45,500		*
Stephen J. Royer(7)		25,166		*
David C. Russell(8)		112,694		*
All Directors and Officers as a Group (12 individuals)		904,767		2.9	%

(1)	Includes 1,073 shares held under the TSA 401(k) Plan, 1,000 shares issuable upon exercise of options, and 600 shares owned by Mr. Ainsworth’s stepmother.

(2)	Includes 1,073 shares held under the TSA 401(k) Plan, 600 shares issuable upon exercise of options, and 400 shares owned by Mr. Benson’s father-in-law.

(3)	Includes 450,000 shares held by a corporation of which Mr. Fisher is a principal stockholder. Mr. Fisher has sole investment and voting authority over such shares. Also includes 81,000 shares issuable upon exercise of options.

(4)	Includes 55,750 shares issuable upon exercise of options.

(5)	Includes 600 shares issuable upon exercise of options, 300 shares held in an IRA account and 187 shares issuable upon exercise of options held by Mr. McFadden’s wife.

(6)	Includes 30,500 shares issuable upon exercise of options.

(7)	Includes 4,833 shares held under the TSA 401(k) Plan and 1,333 shares issuable upon exercise of options.

(8)	Includes 4,563 shares held under the TSA 401(k) Plan, 1,100 shares held in an IRA account and 81,281 shares issuable upon exercise of options.

								Long-Term Compensation Awards
				Annual Compensation				Securities Underlying Options (#)(2)		All Other Compensation ($)(3)
Name and Principal Position		Year		Salary($)		Bonus($)(1)
Anthony J. Parkinson		1999		100,000		340,628		9,000		4,153
President, Chief Executive		1998		65,000		454,178		—		4,497
Officer and Director		1997		54,996		303,307		50,000		1,528
Rick B. Ainsworth		1999		55,000		266,963		1,800		4,153
Vice President of		1998		55,000		291,461		800		4,449
Global Sales		1997		45,000		138,567		400		1,206
Michael F. Benson		1999		101,350		95,875		1,800		4,478
Vice President of		1998		100,000		66,989		—		4,788
Business Process Automation		1997		100,000		58,734		—		1,692
James J. McFadden		1999		101,350		94,986		1,800		4,690
Vice President and		1998		100,000		67,889		—		4,957
Chief Technical Officer		1997		100,000		58,534		—		1,432
Stephen J. Royer		1999		108,850		103,227		4,000		5,019
Vice President and		1998		100,000		64,072		—		5,370
Chief Operating Officer		1997		100,000		57,963		—		1,692

(1)	The Company’s executive officers were eligible for quarterly cash bonuses from TSA. Such bonuses were generally based upon achievement of corporate, geographic or product performance objectives including sales, pretax profit, backlog and cash flow.

(2)	Includes options granted under the TSA 1999 Stock Option Plan, 1997 Management Stock Option Plan and 1996 Stock Option Plan. Each executive officer who was granted options under TSA’s 1997 Management Stock Option Plan paid for such options at the rate of $3.00 for each underlying share.

(3)	Includes matching contributions made by TSA to the executive officer’s 401(k) Plan account. For fiscal 1999, employer contributions by TSA to the TSA 401(k) Plan were $4,000, $4,000, $4,324, $4,504 and $4,857 for Messrs. Parkinson, Ainsworth, Benson, McFadden, and Royer, respectively.

Name		Number of Securities Underlying Options Granted(#)(1)		Percent of Total Options Granted to Employees in Fiscal Year			Exercise Price ($/Share)		Expiration Date		Grant Date Present Value($)(2)
Anthony J. Parkinson		9,000		1.0057	%		30.875		4/22/09		277,816
Rick B. Ainsworth		1,800		0.2011	%		30.875		4/22/09		55,563
Michael F. Benson		1,800		0.2011	%		30.875		4/22/09		55,563
James J. McFadden		1,800		0.2011	%		30.875		4/22/09		55,563
Stephen J. Royer		4,000		0.4470	%		30.875		4/22/09		123,474

(1)	The options referred to in this table were issued under TSA’s 1999 Stock Option Plan. Vesting of the options occurs on an annual pro rata basis over a term of three years from April 23, 1999, the date of issuance of these options.

(2)

Grant Date Present Value is determined using a modified Black-Scholes option pricing model. The estimated values under the model are based on several assumptions, including a weighted-average expected volatility of 38%, a weighted-average risk-free rate of return of 5.7%, no dividend yield, and expected option lives of 5.8 years and may not be indicative of actual value. The actual gain, if any, the option holder may realize will be equal to the excess of the actual market value of the stock on the date the option is exercised over the exercise price. There is no assurance that the value that may be realized by the option holder will be at or near the value estimated by the modified Black-Scholes model.

						Number of Securities Underlying Unexercised Options at Fiscal Year End (#)		Value of Unexercised In-the-Money Options at Fiscal Year End ($)(1)
Name		Shares Acquired on Exercise (#)		Value Realized ($)		Unexercisable/ Exercisable		Unexercisable/ Exercisable
Anthony J. Parkinson		10,000		199,729		34,000/15,000		0/15,934
Rick B. Ainsworth		—		—		2,600/400		0/0
Michael F. Benson		—		—		1,800/0		0/0
James J. McFadden		—		—		1,800/0		0/0
Stephen J. Royer		—		—		4,000/0		0/0

(1)	Based on the closing bid price of TSA’s common stock of $26.9375 on September 30, 1999 as reported by the NASDAQ National Market System, less the exercise price of the options.

Name		Number of Shares		Number of Shares Underlying Options
Anthony J. Parkinson
Rick B. Ainsworth
Michael F. Benson
James J. McFadden
Stephen J. Royer
All executive officers as a group (9 individuals)

Ÿ

prior to the completion of the change of control, the surviving or acquiring entity refuses to assume those options or to substitute similar options for those outstanding under the Concurrent Offering Stock Plan;

Ÿ

our board of directors does not approve the assumption or substitution of those options; or

Ÿ

there is no surviving or acquiring entity upon completion of the change of control.

Ÿ

prior to the completion of the change of control, the surviving or acquiring entity refuses to assume those awards or to substitute similar awards for those outstanding under the 2000 Incentive Plan;

Ÿ

our board of directors does not approve the assumption or substitution of those awards; or

Ÿ

there is no surviving or acquiring entity upon completion of the change of control.

Ÿ

create an organizational structure through which we will have direct access to capital markets;

Ÿ

permit us to focus on our core business strengths as an independent company; and

Ÿ

enhance our ability to attract and retain employees by allowing us to offer incentives that are more closely linked to our market performance.

Master Separation and Distribution Agreement

Ÿ

a general assignment and assumption agreement;

Ÿ

an employee matters agreement;

Ÿ

a tax sharing agreement;

Ÿ

a master transitional services agreement;

Ÿ

a real estate matters agreement;

Ÿ

a registration rights agreement;

Ÿ

a master confidential disclosure agreement;

Ÿ

an indemnification and insurance matters agreement;

Ÿ

a NET24 Sales Agency Agreement; and

Ÿ

a finder’s fee agreement.

Ÿ

the registration statement containing this prospectus must be effective;

Ÿ

we must be in compliance with all United States securities and blue sky laws governing this offering;

Ÿ

our common stock must be included for quotation on the Nasdaq National Market;

Ÿ

our obligations under the underwriting agreement must be met or waived by the underwriters;

Ÿ

TSA must own at least 80.1% of our stock and must be satisfied that the distribution will be tax-free to its United States stockholders;

Ÿ

no legal restraints must exist preventing the separation or this offering;

Ÿ

the separation must have occurred; and

Ÿ

the master separation and distribution agreement must not have been terminated.

Ÿ

the Internal Revenue Service must issue a ruling that the distribution of our common stock will be tax-free to TSA and its stockholders for United States federal income tax purposes;

Ÿ

all required government approvals must be in effect;

Ÿ

no legal restraints must exist preventing the distribution; and

Ÿ

nothing must have happened in the intervening time between this offering and the distribution that makes the distribution harmful to TSA or its stockholders.

(1) Each party will maintain adequate internal accounting to allow the other party to satisfy its own reporting obligations and prepare its own financial statements;

(2) Each party will retain records beneficial to the other party for a specified period of time. If the records are to be destroyed, the destroying party will give the other party an opportunity to retrieve all relevant information from the records, unless the records are destroyed in accordance with adopted record retention policies; and

(3) Each party will use commercially reasonable efforts to provide the other party with directors, officers, employees, other personnel and agents who may be used as witnesses in, and books, records and other documents which may reasonably be required in connection with legal, administrative or other proceedings.

(1) not select a different independent accounting firm from that used by TSA, without TSA’s consent;

(2) use reasonable commercial efforts to enable our auditors to date their opinion on our audited annual financial statements on the same date that TSA’s auditors date their opinion on TSA’s financial statements;

(3) exchange all relevant information needed to prepare financial statements; and

(4) grant each other’s internal auditors access to each other’s records.

(1) may not enter into transactions if another person would acquire shares of our common stock that would be more than 50% of the outstanding common stock on the date of that transaction;

(2) must continue the business described in this prospectus; and

(3) may not liquidate, dispose of, or discontinue one or more of the portions of our businesses, that would be inconsistent with the written materials submitted to the Internal Revenue Service in connection with our request for a ruling or that would jeopardize the tax-free nature of the distribution.

Ÿ

the value of any asset that TSA is transferring to us;

Ÿ

whether there is a lien or encumbrance on any asset TSA is transferring to us; or

Ÿ

whether any conveyance of title to any asset TSA is transferring to us is sufficient to transfer good and marketable title.

General Assignment and Assumption Agreement.

Employee Matters Agreement

Tax Sharing Agreement

Master Transitional Services Agreement

Real Estate Matters Agreement

Ÿ

assignments to us of TSA’s leases for specified leased properties;

Ÿ

subleases to us of portions of specified properties leased by TSA at TSA’s cost; and

Ÿ

short-term leases between TSA and us permitting short term occupancy of selected leased sites.

Master Confidential Disclosure Agreement

Indemnification and Insurance Matters Agreement

Ÿ

our business, any of our liabilities or any of our contracts; and

Ÿ

any breach by us of the master separation and distribution agreement or any ancillary agreement.

Ÿ

TSA’s business other than our business; and

Ÿ

any breach by TSA of the master separation and distribution agreement or any ancillary agreement.

Registration Rights Agreement

(1) an underwritten public offering;

(2) a shelf registration;

(3) a registration in connection with the distribution of, or exchange of or offer to exchange, shares of our common stock to holders of debt or equity securities of TSA, any of its subsidiaries or affiliates or any other person; or

(4) a distribution in connection with the registration by TSA or any of its subsidiaries or affiliates of securities convertible into, exercisable for or otherwise related to such shares of our common stock.

NET24 Sales Agency Agreement

Finder’s Fee Agreement

Other Commercial Arrangements

Demand Notes

Ÿ

acquisition of us by means of a tender offer;

Ÿ

acquisition of us by means of a proxy contest or otherwise; or

Ÿ

removal of our incumbent officers and directors.

Board of Directors.

Advance Notice Procedures.

Special Meetings.

Elimination of Stockholder Action By Written Consent.

Elimination of Cumulative Voting.

Undesignated Preferred Stock.

Amendment of Charter Provisions.

Ÿ

prior to such time, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

Ÿ

upon consummation of the transaction which resulted in the stockholder becoming an “interested stockholder,” the interested stockholder owned at least 85 percent of the voting stock of the corporation outstanding at the time the transaction commenced (excluding specified shares); or

Ÿ

at or subsequent to such time, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2 /3 percent of the outstanding voting stock not owned by the interested stockholder.

Ÿ

any person that is the owner of 15 percent or more of the outstanding voting stock of the corporation, or is an affiliate or associate of the corporation and was the owner of 15 percent or more of the outstanding voting stock of the corporation at any time within three years immediately prior to the date of determination and

Ÿ

the affiliates and associates of any such person.

Ÿ

for any breach of the director’s duty of loyalty to us or our stockholders;

Ÿ

for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

Ÿ

in respect of unlawful dividend payments or stock redemptions or repurchases as provided in Section 174 of the Delaware General Corporation Law; or

Ÿ

for any transaction from which the director derived an improper personal benefit.

Ÿ

1% of the then outstanding shares of common stock; and

Ÿ

the average weekly trading volume in the common stock on the open market during the four calendar weeks preceding such sale.

(1)

the gain is considered effectively connected with the conduct of a trade or business by you within the United States and, where a tax treaty applies, is attributable to a United States permanent establishment of yours (and, in which case, if you are a foreign corporation, you may be subject to an additional branch profits tax equal to 30% or a lower rate as may be specified by an applicable income tax treaty);

(2)

you are an individual who holds the common stock as a capital asset and are present in the United States for 183 or more days in the taxable year of the sale or other disposition and other conditions are met; or

(3)

we are or have been a “United States real property holding corporation,” or a USRPHC, for United States federal income tax purposes. We believe that we are not currently, and are likely not to become, a USRPHC. If we were to become a USRPHC, then gain on the sale or other disposition of common stock by you generally would not be subject to United States federal income tax provided:

Ÿ

the common stock was “regularly traded” on an established securities market; and

Ÿ

you do not actually or constructively own more than 5% of the common stock during the shorter of the five-year period preceding the disposition or your holding period.

Underwriter		Number of Shares
Salomon Smith Barney Inc.
William Blair & Company, L.L.C.
The Robinson-Humphrey Company, LLC
Total

Ÿ

our record of operations;

Ÿ

our current financial condition;

Ÿ

our future prospects;

Ÿ

our markets;

Ÿ

the economic conditions in and future prospects for the industry in which we compete;

Ÿ

our management; and

Ÿ

currently prevailing general conditions in the equity securities markets, including current market valuations of publicly traded companies comparable to us.

		Paid by Insession
		No Exercise		Full Exercise
Per Share
Total

Report of Independent Public Accountants		F-2
Consolidated Balance Sheets as of September 30, 1998, September 30, 1999, and March 31, 2000		F-3
Consolidated Statements of Income for each of the three years in the period ended September 30, 1999,      and for the six months ended March 31, 1999 (unaudited) and March 31, 2000		F-4
Consolidated Statements of Stockholder’s Net Investment for each of the three years in the period ended      September 30, 1999, and for the six months ended March 31, 2000		F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended September 30,      1999, and for the six months ended March 31, 1999 (unaudited) and March 31, 2000		F-6
Notes to Consolidated Financial Statements		F-7
INSESSION INC.:
Report of Independent Public Accountants		F-17
Consolidated Statements of Operations for the year ended June 30, 1998, and for the eight months ended      February 28, 1998 (unaudited) and February 28, 1999		F-18
Consolidated Statements of Changes in Stockholders’ Deficit for the year ended June 30, 1998, and for      the eight months ended February 28, 1999		F-19
Consolidated Statements of Cash Flows for the year ended June 30, 1998, and for the eight months      ended February 28, 1998 (unaudited) and February 28, 1999		F-20
Notes to Consolidated Financial Statements		F-21
PRO FORMA FINANCIAL INFORMATION OF INSESSION TECHNOLOGIES, INC.:
Unaudited Pro Forma Consolidated Statements of Income for the year ended September 30, 1999 and      for the six months ended March 31, 1999		F-26
Note to Unaudited Pro Forma Consolidated Statements of Income		F-29

ARTHUR ANDERSEN LLP

		September 30,				March 31, 2000
		1998		1999
ASSETS
Current assets:
Cash and cash equivalents		$  724		$    327		$    404
Billed receivables, net of allowances of $151, $244, and $273,                 respectively		3,928		3,880		5,899
Accrued receivables		1,176		3,786		3,123
Other		75		101		184
Total current assets		5,903		8,094		9,610
Property and equipment, net		720		1,015		848
Software, net		458		12,919		10,204
Intangible assets, net		—		38,936		36,591
Long-term accrued receivables		—		1,458		2,503
Note receivable		—		—		165
Total assets		$7,081		$62,422		$59,921
LIABILITIES AND STOCKHOLDER’S NET INVESTMENT
Current liabilities:
Due to affiliated company		$  —		$  6,908		$  7,168
Accounts payable		278		1,167		131
Accrued employee compensation		1,230		1,962		1,203
Payable to former Insession Inc. stockholders		—		5,083		4,130
Other accrued liabilities		3,371		3,142		885
Deferred revenue		1,201		3,958		3,308
Total current liabilities		6,080		22,220		16,825
Deferred income taxes		391		4,978		3,975
Deferred revenue		—		3,914		3,169
Total liabilities		6,471		31,112		23,969
Commitments and contingencies
Stockholder’s net investment:
Common stock, $0.01 par value; 1,000 shares authorized; 100 shares issued                 and outstanding at March 31, 2000		—		—		—
Parent company investment		610		31,310		35,952
Total stockholder’s net investment		610		31,310		35,952
Total liabilities and stockholder’s net investment		$7,081		$62,422		$59,921

		Year Ended September 30,									Six Months Ended March 31,
		1997			1998			1999			1999			2000
											(unaudited)
Revenues:
Software license and maintenance fees		$13,413			$24,973			$31,418			$16,591			$19,142
Services		6,521			8,027			8,166			4,321			2,705
Total revenues		19,934			33,000			39,584			20,912			21,847
Expenses:
Cost of software license and maintenance fees:
Cost of software		6,371			12,419			7,711			7,374			366
Amortization of software		413			393			3,294			495			2,716
Cost of support and maintenance		158			122			1,829			569			1,174
Cost of services		4,433			5,109			4,183			2,107			1,823
Research and development		—			—			2,080			792			1,355
Sales and marketing		4,685			6,181			8,325			4,264			4,690
General and administrative		1,970			2,798			5,424			2,624			3,647
Amortization of goodwill		—			—			2,047			373			2,399
Total expenses		18,030			27,022			34,893			18,598			18,170
Operating income		1,904			5,978			4,691			2,314			3,677
Other income (expense):
Interest income		—			—			54			—			86
Interest expense to related party		—			—			(308	)		(45	)		(260	)
Minority interest in net income		—			—			(526	)		(175	)		—
Total other		—			—			(780	)		(220	)		(174	)
Income before income taxes		1,904			5,978			3,911			2,094			3,503
Provision for income taxes		(732	)		(2,293	)		(2,283	)		(1,222	)		(2,258	)
Net income		$  1,172			$  3,685			$  1,628			$    872			$  1,245

		Common Stock		Parent Company Investment			Total
Balance, September 30, 1996		$ —		$    1,294			$    1,294
Net income		—		1,172			1,172
Intercompany transactions with parent		—		(1,538	)		(1,538	)
Balance, September 30, 1997		—		928			928
Net income		—		3,685			3,685
Intercompany transactions with parent		—		(4,003	)		(4,003	)
Balance, September 30, 1998		—		610			610
Net income		—		1,628			1,628
Intercompany transactions with parent		—		(10,552	)		(10,552	)
Contribution from parent related to purchase of Insession Inc.		—		39,624			39,624
Balance, September 30, 1999		—		31,310			31,310
Net income		—		1,245			1,245
Intercompany transactions with parent		—		3,397			3,397
Balance, March 31, 2000		$  —		$  35,952			$  35,952

		Year Ended September 30,									Six Months Ended March 31,
		1997			1998			1999			1999			2000
											(unaudited)
Cash flows from operating activities:
Net income		$  1,172			$  3,685			$    1,628			$    872			$  1,245
Adjustments to reconcile net income to net cash               provided by operating activities:
Depreciation		132			164			319			115			176
Amortization		413			393			5,341			868			5,115
(Increase) decrease in billed and accrued                        receivables, net		50			(2,021	)		(3,921	)		(3,555	)		(2,401	)
(Increase) decrease in other current assets		(49	)		3			(26	)		(337	)		(83	)
Increase in due to affiliated company		—			—			308			44			260
Increase (decrease) in accounts payable		(233	)		152			5,605			2,549			(1,036	)
Increase (decrease) in accrued employee                        compensation		947			240			732			19			(759	)
Decrease in payable to former Insession Inc.                        stockholders		—			—			(805	)		(122	)		(953	)
Increase (decrease) in other accrued liabilities		(215	)		2,261			7,185			6,842			(261	)
Increase (decrease) in deferred revenue		304			51			803			1,874			(1,395	)
Net cash provided by (used in) operating                                 activities		2,521			4,928			17,169			9,169			(92	)
Cash flows from investing activities:
Additions of property and equipment		(315	)		(350	)		(207	)		(97	)		(9	)
Additions of software		(269	)		(279	)		(343	)		(257	)		(1	)
Acquisition of Insession Inc., net of cash acquired		—			—			(6,464	)		1,997			(3,053	)
Additions to investments and notes receivable		—			—			—			—			(165	)
Net cash provided by (used in) investing                                 activities		(584	)		(629	)		(7,014	)		1,643			(3,228	)
Cash flows from financing activities:
Intercompany transactions with parent		(1,538	)		(4,003	)		(10,552	)		(8,983	)		3,397
Net cash provided by (used in) financing                                 activities		(1,538	)		(4,003	)		(10,552	)		(8,983	)		3,397
Net increase (decrease) in cash and cash equivalents		399			296			(397	)		1,829			77
Cash and cash equivalents, beginning of period		29			428			724			724			327
Cash and cash equivalents, end of period		$    428			$    724			$      327			$  2,553			$    404

Revenue Recognition

Use of Estimates in Preparation of Consolidated Financial Statements

Cash and Cash Equivalents

Factoring of Accrued Receivables

Concentration of Credit Risk

Deferred Revenue

Property and Equipment

Software

Intangible Assets

Impairment of Long-Lived Assets

Fair Value of Financial Instruments

Translation of Foreign Currencies

Comprehensive Income

Earnings Per Share

Stock-Based Compensation

Recent Accounting Pronouncements

Interim Financial Information

		Year Ended September 30
		1998			1999
Revenues		$33,597			$40,194
Net loss		$(3,949	)		$      35

		September 30,						March 31, 2000
		1998			1999
Computer equipment		$1,096			$2,168			$2,196
Office furniture and fixtures		342			425			423
Leasehold improvements		135			304			248
		1,573			2,897			2,867
Less—accumulated depreciation		(853	)		(1,882	)		(2,019	)
Property and equipment, net		$  720			$1,015			$  848

		September 30,						March 31, 2000
		1998			1999
Internally developed software		$1,706			$  1,979			$  1,979
Purchased software		18			15,593			15,594
		1,724			17,572			17,573
Less—accumulated amortization		(1,266	)		(4,653	)		(7,369	)
Software, net		$  458			$12,919			$10,204

Operating Leases

2000		$  634
2001		620
2002		450
2003		125
2004		116
2005		58
Total		$2,003

Legal Proceedings

Stock Incentive Plans

Conversion of Existing TSA Stock Options

		Year Ended September 30,																				Six Months Ended March 31, 2000
		1997						1998							1999
		Current		Deferred		Total		Current		Deferred			Total		Current		Deferred			Total		Current		Deferred			Total
Federal		$509		$128		$637		$2,024		$(30	)		$1,994		$3,126		$(1,142	)		$1,984		$2,835		$    (872	)		$1,963
State		76		19		95		304		(5	)		299		470		(171	)		299		426		(131	)		295
Total		$585		$147		$732		$2,328		$(35	)		$2,293		$3,596		$(1,313	)		$2,283		$3,261		$(1,003	)		$2,258

		Year Ended September 30,						Six Months Ended March 31, 2000
		1997		1998		1999
Tax expense at federal rate of 35%		$666		$2,092		$1,369		$1,226
Effective state income tax		62		195		291		275
Amortization of intangibles		—		—		614		752
Other		4		6		9		5
		$732		$2,293		$2,283		$2,258

		September 30,						March 31, 2000
		1998			1999
Deferred assets (liabilities):
Acquired software		$—			$(4,753	)		$(3,770	)
Depreciation		(38	)		71			73
Amortization		(353	)		(296	)		(278	)
		$(391	)		$(4,978	)		$(3,975	)

ARTHUR ANDERSEN LLP

		Year Ended June 30, 1998			Eight Months Ended February 28, 1998			Eight Months Ended February 28, 1999
					(unaudited)
Revenue:
Software license and maintenance fees		$  8,725			$  5,303			$9,001
Services		74			50			88
Total revenue		8,799			5,353			9,089
Costs and expenses:
Royalties		1,254			731			1,247
Customer support		1,435			945			1,080
Research and development		4,759			3,260			2,706
Selling and marketing		1,393			956			666
Amortization		1,002			668			668
General and administrative		2,062			1,393			2,382
Total costs and expenses		11,905			7,953			8,749
Operating income (loss)		(3,106	)		(2,600	)		340
Interest expense, net		(496	)		(308	)		(326	)
Income (loss) before income taxes		(3,602	)		(2,908	)		14
Benefit from income taxes		—			—			—
Net income (loss)		$(3,602	)		$(2,908	)		$    14

		Preferred Stock								Common Stock				Additional Paid-In Capital		Stock Subscription Receivable			Treasury Stock						Deferred Compensation			Accumulated Deficit			Total Stockholders’ Deficit
		Series A				Series B
		Shares		Amount		Shares		Amount		Shares		Amount							Shares			Amount
Balance at June 30, 1997		97,000		$—		240,625		$—		1,061,023		$  1		$5,645		$(233	)		(25,230	)		$  (56	)		$—			$(5,611	)		$    (253	)
Exercise of stock options		—		—		—		—		17,041		—		38		—			—			—			—			—			38
Cancellation of stock        subscriptions receivable		—		—		—		—		—		—		—		67			(30,516	)		(67	)		—			—			—
Payment on note		—		—		—		—		—		—		—		123			—			—			—			—			123
Deferred compensation		—		—		—		—		—		—		531		—			—			—			(531	)		—			—
Amortization of deferred        compensation		—		—		—		—		—		—		—		—			—			—			190			—			190
Net loss		—		—		—		—		—		—		—		—			—			—			—			(3,602	)		(3,602	)
Balance at June 30, 1998		97,000		—		240,625		—		1,078,064		1		6,214		(43	)		(55,746	)		(123	)		(341	)		(9,213	)		(3,504	)
Exercise of stock options		—		—		—		—		3,660		—		8		—			—			—			—			—			8
Amortization of deferred        compensation		—		—		—		—		—		—		—		—			—			—			90			—			90
Net income		—		—		—		—		—		—		—		—			—			—			—			14			14
Balance at February 28, 1999		97,000		$—		240,625		$—		1,081,724		$  1		$6,222		$  (43	)		(55,746	)		$(123	)		$(251	)		$(9,199	)		$(3,392	)

		Year Ended June 30, 1998			Eight Months Ended February 28, 1998			Eight Months Ended February 28, 1999
					(unaudited)
Cash flows from operating activities:
Net income (loss)		$(3,602	)		$(2,908	)		$      14
Adjustments to reconcile net loss to net cash from operating            activities—
Depreciation		304			123			212
Amortization		1,002			668			668
Amortization of deferred compensation		190			127			90
Changes in—
Accounts receivable, net		(1,212	)		(643	)		(1,781	)
Other assets		(26	)		(78	)		228
Accounts payable and accrued liabilities		50			(111	)		737
Royalties payable		178			102			272
Deferred revenue		584			543			1,309
Net cash provided by (used in) operating activities		(2,532	)		(2,177	)		1,749
Cash flows from investing activities:
Capital expenditures		(49	)		(36	)		(229	)
Net cash provided by (used in) investing activities		(49	)		(36	)		(229	)
Cash flows from financing activities:
Proceeds from issuance of demand note payable		2,100			1,500			—
Proceeds from sale of stock and receipt of subscription receivables,            net		160			12			8
Net cash provided by financing activities		2,260			1,512			8
Net increase (decrease) in cash		(321	)		(701	)		1,528
Cash at beginning of period		793			793			472
Cash at end of period		$    472			$      92			$  2,000
Supplemental Disclosure of Cash Flow Information:
Interest paid		$    388			$    108			$    435
Income taxes paid		$    —			$    —			$    —

Principles of Consolidation and Basis of Presentation

Revenue Recognition and Deferred Revenue

Research and Development and Capitalized Software Development Costs

General and Administrative Expenses

Depreciation of Property and Equipment

Amortization of Intangible Assets

Foreign Currency

Concentration of Revenues from Major Customer

Stock-Based Compensation

Income Taxes

Royalty Agreements

Estimates

Common Stock and Subscription Receivables

Stock Options

		Options			Exercise Price
Outstanding at June 30, 1997		168,681			$2.20
Granted		103,900			2.20 – 2.40
Exercised		(17,041	)		2.20
Forfeited		(43,971	)		2.20 – 2.40
Outstanding at June 30, 1998		211,569			2.20 – 2.40
Granted		—
Exercised		(3,660	)		2.20 – 2.40
Forfeited		(4,650	)		2.20 – 2.40
Outstanding at February 28, 1999		203,262			2.20 – 2.40
Options vested at February 28, 1999		147,494			$2.20 – 2.40

		Year Ended June 30, 1998			Eight Months Ended February 28, 1999
Net income (loss)—As reported		$(3,602	)		$14
Net loss—Pro Forma		(3,660	)		(28	)

		Year Ended June 30, 1998			Eight Months Ended February 28, 1999
Expected dividend yield		0.0	%		0.0	%
Expected stock price volatility		0.0	%		0.0	%
Risk free interest rate		6.0	%		6.0	%
Expected life of each option		6 years			6 years

Four months ended June 30, 1999		$239
Fiscal year 2000		411
Fiscal year 2001		106
Fiscal year 2002		0
		$756

		Year Ended June 30, 1998			Eight Months Ended February 28, 1999
Tax benefit (provision) at the federal rate of 34%		$1,225			$    (5	)
Non-deductible expenses		(419	)		(353	)
State taxes and other, net		90			—
Valuation allowance		(896	)		358
		$  —			$—

		June 30, 1998			February 28, 1999
Gross deferred tax assets—
Net operating loss carryforwards		$  1,751			$  755
Deferred revenue		721			1,014
Foreign tax loss carryovers		642			642
Accounts payable and accrued liabilities		474			732
Intangible assets and other		659			929
		4,247			4,072
Gross deferred tax liabilities—
Accounts receivable		(1,125	)		(1,047	)
Other accrual to cash adjustments		(23	)		(2	)
		3,099			3,023
Less—Valuation allowance		(3,099	)		(3,023	)
Net deferred taxes		$    —			$  —

		Company— Year Ended September 30, 1999			Insession Inc.— Five Months Ended February 28, 1999			Pro Forma Adjustments			Pro Forma Year Ended September 30, 1999
Revenues:
Software license and maintenance fees		$31,418			$6,106			$(5,512	)(a)		$32,012
Services		8,166			16			—			8,182
Total revenues		39,584			6,122			(5,512	)		40,194
Expenses:
Cost of software license and maintenance                 fees:
Cost of software		7,711			—			(7,374	)(b)		337
Amortization of software		3,294			—			2,155	(c)		5,449
Cost of support and maintenance		1,829			711			—			2,540
Cost of services		4,183			—			—			4,183
Research and development		2,080			1,684			—			3,764
Sales and marketing		8,325			418			—			8,743
General and administrative		5,424			2,595			—			8,019
Amortization of goodwill		2,047			418			1,707	(d)		4,172
Total expenses		34,893			5,826			(3,512	)		37,207
Operating income (loss)		4,691			296			(2,000	)		2,987
Other income (expense):
Interest income		54			—			—			54
Interest expense		(308	)		(189	)		—			(497	)
Minority interest in net income		(526	)		—			526	(e)		—
Total other		(780	)		(189	)		526			(443	)
Income (loss) before income taxes		3,911			107			(1,474	)		2,544
Provision for income taxes		(2,283	)		—			(269	)(f)		(2,552	)
Net income		$  1,628			$  107			$(1,743	)		$        (8	)

(a)

To eliminate the revenues recorded by Insession Inc. related to royalty payments received from the Company for the sale of Insession Inc.’s principal software product.

(b)

To eliminate the royalty expense recorded by the Company and paid to Insession Inc. in accordance with the distribution agreement.

(c)

To reflect the amortization over three years of the software recorded in the purchase of Insession Inc.

(d)

To reflect the amortization over ten years of the goodwill recorded in the purchase of Insession Inc.

(e)

To eliminate minority interest in net income of Insession Inc. recorded by the Company.

(f)

To reflect the tax effect of Insession Inc.’s pre-tax income, as well as the tax basis of the goodwill recorded in the purchase of Insession Inc., based upon the Company’s historical tax rate for the period.

		Company— Six Months Ended March 31, 1999			Insession Inc.— Five Months Ended February 28, 1999			Pro Forma Adjustments			Pro Forma Six Months Ended March 31, 1999
Revenues:
Software license and maintenance fees		$16,591			$6,106			$(5,436	)(a)		$17,261
Services		4,321			16			—			4,337
Total revenues		20,912			6,122			(5,436	)		21,598
Expenses:
Cost of software license and maintenance fees:
Cost of software		7,374			—			(7,374	)(b)		—
Amortization of software		495			—			2,155	(c)		2,650
Cost of support and maintenance		569			711			—			1,280
Cost of services		2,107			—			—			2,107
Research and development		792			1,684			—			2,476
Sales and marketing		4,264			418			—			4,682
General and administrative		2,624			2,595			—			5,219
Amortization of goodwill		373			418			1,707	(d)		2,498
Total expenses		18,598			5,826			(3,512	)		20,912
Operating income (loss)		2,314			296			(1,924	)		686
Other income (expense):
Interest income		—			—			—			—
Interest expense		(45	)		(189	)		—			(234	)
Minority interest in net income		(175	)		—			175	(e)		—
Total other		(220	)		(189	)		175			(234	)
Income (loss) before income taxes		2,094			107			(1,749	)		452
Provision for income taxes		(1,222	)		—			101	(f)		(1,121	)
Net income		$    872			$  107			$(1,648	)		$    (669	)

(a)

To eliminate the revenues recorded by Insession Inc. related to royalty payments received from the Company for the sale of Insession Inc.’s principal software product.

(b)

To eliminate the royalty expense recorded by the Company and paid to Insession Inc. in accordance with the distribution agreement.

(c)

To reflect the amortization over three years of the software recorded in the purchase of Insession Inc.

(d)

To reflect the amortization over ten years of the goodwill recorded in the purchase of Insession Inc.

(e)

To eliminate minority interest in net income of Insession Inc. recorded by the Company.

(f)

To reflect the tax effect of Insession Inc.’s pre-tax income, as well as the tax basis of the goodwill recorded in the purchase of Insession Inc., based upon the Company’s historical tax rate for the period.

---

---

---

---

Ÿ

our record of operations;

Ÿ

our current financial condition;

Ÿ

our future prospects;

Ÿ

our markets;

Ÿ

the economic conditions in and future prospects for the industry in which we compete;

Ÿ

our management; and

Ÿ

currently prevailing general conditions in the equity securities markets, including current market valuations of publicly traded companies comparable to us.

---

---

---

---

Exercise price. The exercise price per share will be the public offering price in our underwritten initial public offering. The exercise price is payable in cash or check, or such other form of payment as may be permitted under the terms of the stock option agreement.

Exercisability. The options may not be exercised during the first year after the grant date. The options will become exercisable at the rate of one third of the underlying shares on each anniversary of the grant date so long as the grantee’s employment with us does not terminate prior to the anniversary date.

Type of option. The options will be non-qualified stock options. See “Federal Income Tax Consequences” below.

Expiration. The option will expire, meaning it will no longer be exercisable, ten years after the grant date.

Termination of Employment. If the employee is no longer employed by us for a reason other than death or disability, then the employee may exercise the option, to the extent it was exercisable at the time of termination of employment, for 90 days after the effective date of termination of employment, unless our board of directors determines otherwise. Upon death or disability, the option will be immediately exercisable in full and the employee (or his or her legal representative) may exercise the option for twelve months from the date of termination.

Change of Control. In the event of a change of control, as defined in the plan, of us, any surviving or acquiring entity must, subject to the approval of our board of directors, assume the outstanding options or substitute a similar option. All outstanding options as of the completion date of the change of control will be fully exercisable if:

Ÿ

prior to the completion of the change of control, the surviving or acquiring entity refuses to assume those options or to substitute similar options for those outstanding;

Ÿ

our board of directors does not approve the assumption or substitution of those options; or

Ÿ

there is no surviving or acquiring entity upon completion of the change of control.

If the surviving or acquiring entity does not assume the options or substitute similar options, then the outstanding options will terminate if not exercised upon or prior to the completion of the change of control.

Ÿ

prior to the completion of the change of control, the surviving or acquiring entity refuses to assume those options or to substitute similar options for those outstanding;

Ÿ

our board of directors does not approve the assumption or substitution of those options; or

Ÿ

there is no surviving or acquiring entity upon completion of the change of control.

Ÿ

the number of shares of our common stock (1) reserved for issuance under the Plan, (2) for which awards may be made, and (3) covered by outstanding unexercised options; and

Ÿ

the exercise or other applicable price.

(1) Our latest annual report filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act, or the latest prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, that contains audited financial statements for our latest fiscal year for which such statements have been filed.

(2) All other reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act since the end of the fiscal year covered by the document referred to in (1) above.

(3) The description of our common stock contained in a registration statement filed under the Securities Exchange Act, including any amendment or report filed for the purpose of updating such description.

SEC Registration Fee		$18,480
NASD Registration Fee		7,500
Nasdaq Stock Market Original and Continued Listing Fees
Transfer Agent and Registrar Fees		*
Accounting Fees and Expenses		*
Legal Fees and Expenses		*
Printing, Engraving and Mailing Expenses		*
Miscellaneous		*
Total		$  *

*	To be filed by amendment.

Ÿ

for any breach of the director’s duty of loyalty to Insession or its stockholders;

Ÿ

for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

Ÿ

in respect of unlawful dividend payments or stock redemptions or repurchases as provided in Section 174 of the DGCL; or

Ÿ

for any transaction from which the director derived an improper personal benefit.

Exhibit No.		Description
1.1†		Form of Underwriting Agreement.
2.1*		Form of Master Separation and Distribution Agreement between Insession and TSA.
2.2†		Form of General Assignment and Assumption Agreement between Insession and TSA.
2.3†		Form of Tax Sharing Agreement between Insession and TSA.
2.4†		Form of Employee Matters Agreement between Insession and TSA
2.5†		Form of Real Estate Matters Agreement between Insession and TSA
2.6†		Form of Indemnification and Insurance Agreement between Insession and TSA

Exhibit No.		Description
2.7†		Form of Master Confidential Disclosure Agreement between Insession and TSA
2.8†		Form of Master Transitional Services Agreement between Insession and TSA
2.9†		Form of Registration Rights Agreement between Insession and TSA
2.10†		Form of NET24 Sales Agency Agreement between Insession and TSA
2.11†		Form of Finder’s Fee Agreement between Insession and TSA
3.1*		Amended and Restated Certificate of Incorporation of Insession
3.2*		Amended and Restated By-laws of Insession
4.1†		Form of certificate representing shares of common stock.
5.1†		Opinion of Baker & McKenzie.
10.1†		Form of Indemnity Agreement for Directors and Executive Officers
10.2†		Insession Technologies, Inc. Stock Option Plan for Conversion of TSA Options
10.3†		Insession Technologies, Inc. 2000 Stock Incentive Plan
10.4†		Insession Technologies, Inc. Concurrent Offering Stock Plan
10.5†		Form of Employee Restricted Stock Purchase Agreement
21.1†		Subsidiaries of Insession
23.1†		Consent of Baker & McKenzie (included in Exhibit 5.1).
23.2*		Consent of Arthur Andersen LLP
24.1*		Power of Attorney (included on page II-5).
27.1*		Financial Data Schedule.

*	Filed herewith.

†	To be filed by amendment.

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

INSESSION TECHNOLOGIES , INC .

/S /

By:

Anthony J. Parkinson

President, Chief Executive Officer and Director

Signature		Title		Date
/S /                                                                                                         Anthony J. Parkinson		President, Chief Executive Officer and Director		June 2, 2000
/S /                                                                                                         Dwight G. Hanson		Director of Insession Technologies, Inc.; Chief Financial Officer and Senior Vice President of Transaction Systems Architects, Inc. (principal financial officer)		June 2, 2000
/S /                                                                                                         Edward Fuxa		Controller of Transaction Systems Architects, Inc. (principal accounting officer)		June 2, 2000
/S /                                                                                                         William E. Fisher		Director		June 2, 2000
/S /                                                                                                         David C. Russell		Director		June 2, 2000

Exhibit No.		Description
1.1†		Form of Underwriting Agreement.
2.1*		Form of Master Separation and Distribution Agreement between Insession and TSA.
2.2†		Form of General Assignment and Assumption Agreement between Insession and TSA.
2.3†		Form of Tax Sharing Agreement between Insession and TSA.
2.4†		Form of Employee Matters Agreement between Insession and TSA
2.5†		Form of Real Estate Matters Agreement between Insession and TSA
2.6†		Form of Indemnification and Insurance Agreement between Insession and TSA
2.7†		Form of Master Confidential Disclosure Agreement between Insession and TSA
2.8†		Form of Master Transitional Services Agreement between Insession and TSA
2.9†		Form of Registration Rights Agreement between Insession and TSA
2.10†		Form of NET24 Sales Agency Agreement between Insession and TSA
2.11†		Form of Finder’s Fee Agreement between Insession and TSA
3.1*		Amended and Restated Certificate of Incorporation of Insession
3.2*		Amended and Restated By-laws of Insession
4.1†		Form of certificate representing shares of common stock.
5.1†		Opinion of Baker & McKenzie.
10.1†		Form of Indemnity Agreement for Directors and Executive Officers
10.2†		Insession Technologies, Inc. Stock Option Plan for Conversion of TSA Options
10.3†		Insession Technologies, Inc. 2000 Stock Incentive Plan
10.4†		Insession Technologies, Inc. Concurrent Offering Stock Plan
10.5†		Form of Employee Restricted Stock Purchase Agreement
21.1†		Subsidiaries of Insession
23.1†		Consent of Baker & McKenzie (included in Exhibit 5.1).
23.2*		Consent of Arthur Andersen LLP
24.1*		Power of Attorney (included on page II-5).
27.1*		Financial Data Schedule.

*	Filed herewith.

†	To be filed by amendment.

ARTHUR ANDERSEN LLP

		Year Ended September 30,							Six Months Ended March 31,
		1997		1998		1999			2000
Balance, beginning of period		$50		$  59		$151			$244
Additions charged to expense		9		92		270			29
Reductions		—		—		(177	)		—
Balance, end of period		$59		$151		$244			$273